Service Charge aka Forced Tip in Indian Restaurants

Sushubh

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We were discussing this on another thread...

https://broadbandforum.co/politics/71612-anna-hazares-dream-corruption-free/82/#post537351

Here is a good article from Akosha on the same.

Eating At Restaurants Turns

“Service Charge” a.k.a. forced tip
Now, let us proceed to the more dubious question of “service charges”. These charges work like a mandatory tip. Restaurants normally apply these to ensure that their working staffs have enough incentive (or just to extract more from you). This practice is rather prevalent in the mid-range & high-range restaurants in and around the Delhi-NCR region (probably the disease has spread to all metros).

Is this legal? Can I refuse to pay service charge?

Before we answer this, remember, if there is service charge on the bill, there is absolutely NO obligation to pay a tip. This practice has apparently been borrowed from the West.

The legal position regarding the validity of this practice is not clear. However, one viewpoint is that it is illegal. Legally, if eating at a restaurant is understood in contractual terms, the terms and conditions are present in the menu card, and most restaurants clearly mention the imposition of an extra service charge in its menu card. So, they can technically argue that you agreed to pay for it. However, if there is no such mention of a service charge in the menu or in the restaurant, you can legally refuse to pay that amount. Service charge, unlike the VAT or Service Tax, is not your duty to the government, but a restaurant policy. However, if the imposition of Service charge is clearly communicated by the restaurant, via its menu or otherwise, then the restaurants are entitled to include this amount when calculating your sub-total for service tax purposes.

If you received terrible service, it is always a good idea to try to get it removed. Some restaurants will oblige; some won’t. But worth trying.
 

Jaymin

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Nice article. But i think if the hotel charges separate "Service charge" then we have all the rights to tell the hotel people, that Service tax be charged on service charges & that on the Food, VAT shud be charged. Because if they are segregating the "Service component" & "Food component", then they cant charge Service tax on the whole amount.
 

Sushubh

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considering the discounts given by dominoes, same applies to them too. you pay a whole lot more ordering in their restaurants even though they serve food in delivery packages!
 

mhsabir

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Hmm... something in the calculations I dont understand... 12.5% on non-beverages gave ~127. So those would have to be around 1010. And 20% on beverages would have meant that those were 187.. So subtotal should have been around 1200.. to explain that VAT..

:wondering:
 
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for me, expecting a tip == begging.

Americans ruining it for everyone.And worst part is they think it is totally fine for server to mess with your food if you dont tip.
 

mhsabir

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Ok. This is what I concluded is done, wondering if valid though

Bill = 1090.5 (Non-Bev 903.5, Bev 187)
Service Charges = 109.06 is added next, so that combined is 1199.56, Non-Bev + Service Charge = 1012.56 )
Service Tax 4.94% on (Bill + Service Charge) = 59.11 (4.96% gives ~59.31)
VAT on (Non-Bev + Service Charge) = 126.57
VAT on Bev = 37.4
 

mhsabir

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So around 30% in Charges/Taxes :oops:

Google has left me confused whether service charges are VAT able or not...
 
Last edited:

amish

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While on paper it sounds good move but hotel management will simply increase rates accordingly!
 

Sushubh

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an official guideline is still welcome. increased rates on the menu is better because you get closer to the final price. service charge at 10% in addition to regular taxes levied by government(s) pretty much makes the pricing in menu a joke. i wish they would just establish a ruling requiring all restaurants to show all-inclusive pricing on their menus. freshmenu and yumist are doing it already. a few local joints also do it (i have no idea if they are just not paying taxes or have included them in the prices on the menu). this should be the standard. like mrp on products.
 

mhsabir

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The problem is some restuarants are going out of control. In 2013, I remember seeing a bill (paid by someone else) of Rs.2500 had an additional Rs.500 as service charge - and this was no fancy restaurant, a typical 500-600 for 2 kind of restaurant. We decided never to go to that place again. As its exorbitant.